Wednesday saw another high release of UK inflation data with figures creeping up to yet another 40-year high at 9.4%. Main contributors to inflation were a 42% year-on-year increase in energy prices and an almost 10% year-on-year increase for food prices.
This has led to Bank of England Governor Andrew Bailey to commit to entertaining the possibility of a 50bps hike in the next scheduled meeting on the 4th August. With the energy price cap set to rise again in October, the goal posts for year end inflation keep on moving with expectations now suggesting we will experience 12% inflation by the turn of the year.
Public Sector Net Borrowing for The UK is another concern for the government, with national debt growing by just shy of £23bn last month, which is the second highest figure for the month of June since records began in 1993. This puts The UK in a difficult position as tax and spending policies will need to be perfectly balanced to ensure inflation isn’t pushed up any further, ultimately squeezing consumer disposable income even further.
In Italy, it now looks certain that Mario Draghi will resign after failed attempts to bring together a coalition government. Draghi lost a vote of confidence yesterday all but showing the collapse of the Italian Government. It now increases the possibility of a snap election in October which now almost certainly will cause some instability to The Euro due to the calm nature he brought to the Italian economy over the past 15 months.
Later today, The European Central Bank have their interest rate decision with bets now ramping up on their first rate hike in over a decade being a 50bps hike. This initially led to The Euro climbing from a 2 week low against The USD on Tuesday, and there are further reports that The ECB could implement Anti-Fragmentation tools which would effectively see the central bank buy more bonds from debt-laden countries such as Italy in order to get borrowing costs under control.
Elsewhere this week see’s the release of UK Retail Sales for June, with expectations suggesting a further drop as borrowing costs and inflation continue to rise.
